Reeves plot to hammer banks hits confidence: Chancellor warned against fresh tax raid

Fears of a tax raid on banks are sending a ‘negative signal to international investors’, lenders have warned Chancellor Rachel Reeves.

A report from trade body UK Finance revealed that the industry already pays higher tax rates than rival hubs such as New York and Frankfurt.

Banks contributed £43.3billion in the latest financial year, it said.

It comes amid growing speculation that Reeves will target banks in the Budget next month as she seeks to repair the public finances.

Analysis from the Institute for Fiscal Studies, an economic think-tank, suggests she may have to raise as much as £42billion in tax hikes and spending cuts to fill Britain’s financial black hole and build a buffer against future uncertainty.

But David Postings, chief executive of UK Finance, said: ‘Uncertainty around future bank taxation, combined with permanent sector-specific taxes, sends a negative signal to international investors.

Squeezed: A new report from trade body UK Finance revealed that the UK banking industry already pays higher tax rates than rival hubs such as New York and Frankfurt

‘A strong economy needs strong banks.’

The UK Finance report said the total tax rate for banks based in London this year is 46.4 per cent, compared with 42.2 per cent for Amsterdam, 38.9 per cent for Frankfurt, 28.9 per cent in Dublin and just 27.9 per cent in New York. 

The UK rate is up by 0.6 percentage points compared to the year before, following changes to employer National Insurance Contributions (NICs) in April.

It will rise to 46.6 per cent in 2026 as the full impact of the NICs changes take effect.

The report noted that, unlike the US, Switzerland and Singapore, the UK imposes specific banking levies which have become permanent. 

Of the £43.3billion paid by banks, £23.1billion comes directly, including through corporation tax and the bank levy, and represents 11.4 per cent of total receipts from corporate taxes.

And £20.2billion was paid through income tax^[1] and national insurance paid by employees.

Postings said it showed the UK banking sector is a ‘major contributor to public finances’.

‘But it also shows that banks operating here face a total tax rate significantly higher than in other global financial centres,’ he added.

Persistent speculation has suggested that the Chancellor is considering a tax raid on banks which would further add to their burden.

Earlier this month, it was reported that Reeves was eyeing an increase in the banking surcharge – a levy that is added to companies’ corporation tax bill – from 3 per cent to 8 per cent in order to raise £2billion.

And earlier this year, the Institute for Public Policy Research, a left-leaning think-tank, called for a separate windfall tax on lenders, which would raise up to £8billion a year.

That is despite a concerted lobbying campaign by lenders who say the move would damage growth, arguing that higher taxes would threaten their capacity to lend to households and growing businesses.

Barclays chief CS Venkatakrishnan last month said that UK banks were more highly taxed than anywhere else adding: ‘How much more are you going to squeeze this?’

UK Finance’s report comes as lenders report third-quarter results next week. Bosses are likely to use the opportunity to reiterate their concerns about tax hikes.

But other observers are likely to point to multibillion-pound profit hauls as evidence that they can afford to pay more.